Managing Risks in Large Solar Energy Projects
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Chris Lohmann of Energi Insurance focuses on managing risks in large solar energy projects and oversees the company's alternative energy solutions and warranty programs. Energi provides specialty risk management solutions, understanding risks in the energy sector and developing techniques to mitigate them, and is licensed to operate across North America. The document highlights a case study involving 510nano, demonstrating Energi's role in structuring financing solutions to ensure productivity guarantees and operational risk management.
Managing Risks in Large Solar Energy Projects
- 1. Principal Solar Institute Chris Lohmann VP Alternative Energy Solutions Energi Insurance Managing Risks in Large Solar Energy Projects As Vice President of Alternative Energy Solutions (AES), Chris focuses on managing the growth of Energi’s AES Warranty Programs—which recently announced projects in Hawaii and Toronto—as well as program development, business development and building strategic relationships. He works closely with Energi’s partners, insurance brokers/agents, policyholders and various stakeholders across the market, including banks and financial institutions that lend on renewable and energy efficiency projects.
- 2. 2 Energi Insurance Energi is a leading provider of specialty risk management solutions, including insurance and reinsurance, to niche sectors of the energy industry. Energi’s competitive strength lies in doing the hard work to truly understand the risks faced by operators and investors, and then developing proprietary mitigation, loss prevention, and operational risk management techniques to best serve them. Energi is licensed to do business in all 50 states and Canada, and, through its strategic partners, can provide risk management services globally.
- 3. 3 Pioneering project performance warranty solutions for the advanced energy sector 24 master policies since January 2011, with steady growth each year Over 100 projects insured, ranging from <$50k to >$70mm Alternative Energy Solutions AES Product Offerings • Energy Savings Warranty Backstops savings guarantees offered to building or project owners • Output Performance Warranty Provides payment of shortfalls in cash-flow due to underperformance of project
- 4. 4 Basic Energy Project Financing Project financings require substantial capital expenditure upfront and depend on multi-year future cash-flows to provide returns. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Cap Ex ($50,000,000) Production - 5,015,000 5,015,000 5,015,000 5,015,000 5,015,000 Price $2.38 $2.49 $2.59 $2.68 $2.79 Cash-flow ($50,000,000) $11,935,700 $12,487,350 $12,988,850 $13,440,200 $13,991,850 Cumulative ($50,000,000) ($38,064,300) ($25,576,950) ($12,588,100) $852,100 $14,843,950 IRR 9% These cash-flows depend upon a significant number of variable factors, which constitute risks to project success and return on capital.
- 5. 5 1. Identify Risks 2. Eliminate Risks 3. Structure Risks 4. Mitigate Risks 5. Establish ongoing Operational Risk Management Risk Management for Energy Projects
- 6. 6 Hazard, Disaster & General Liability Market access, demand volume and price Inputs & Feedstock Technology Engineering Productivity Identify Risks Energi Performance Warranty Energi Performance Warranty Energi Performance Warranty
- 7. 7 Screen out errors with multiple eyes on everything Tighten precision through full actual system measurements and complete calculations vs. sampling, rules of thumb and other shortcuts Eliminate Risks
- 8. 8 Align obligations with project operations • Time obligations according to expected outputs, with conservative expectations of % uptime Assign risks to the most appropriate partner and align incentives • Facility owners take the risk for usage • Plant operators take initial risk for performance • Equity owners absorb downside in exchange for upside opportunities • Insurance carries catastrophic risk Structure Risks
- 9. 9 Build system redundancy Plan for inventory buffers Utilize Performance Warranties – Leverage aggregation of risks across portfolios – Structure guarantees to customer contracts to safeguard cash-flows Mitigate Risks
- 10. 10 Continuous Learning & Improvement processes incorporated into all day- to-day operations 1. Measure • Utilize Remote Measurement, Verification & Controls (Internet of Things) • Multiple in-process performance measurements with real-time corrections to smooth volatility early 2. Identify issues 3. Investigate causes 4. Remediate 5. Revise processes to prevent repeated issues Ongoing Operational Risk Management
- 11. 11 510Nano developed and commissioned a 1.4 MW photovoltaic power plant on 25 acres in Garysburg, NC. 510Nano was able to secure financing from a local credit union contingent upon an investment-grade guarantee of the productivity of the project, that, combined with the PPA, would ensure adequate repayment of the debt. Energi tailored a policy to the five-year period and precise annual energy output required to meet the lender’s risk management needs, and structured operational risk management factors sufficient to deliver the insurance at the lowest possible premium rate. Through continuous remote monitoring of the solar panels and system equipment, 510Nano and Energi are able to react in real time to anomalies before they become problems that impact the annual output. Case Study: 510Nano
- 12. 12 Experience with multiple technologies and market models and expertise in structuring of deals for optimal risk management and allocation Ability to aggregate risks across large numbers of projects in order to gain efficiencies of scale and diversification Investment grade balance sheet to enhance overall credit rating Profile of a Good Risk Management Partner
- 13. 13 Questions and Discussion Chris Lohmann VP Alternative Energy Solutions Energi Insurance Please enter your questions into the Chat window Contact: [email protected] www.energi.com